02.22.14 10:45 AM ET
Consultants Are Cashing In On Campaigns’ Dark New Economics
This report is cross-posted at the Center for Responsive Politics.
More than eight months out from Election Day, voters around the country are already being peppered with political attack ads like this one from a 501(c)(4) social-welfare organization, whose address is a post-office box in Des Moines, Iowa. In this second midterm election since the Supreme Court’s Citizens United ruling, nonparty groups such as super PACs and politically active nonprofits have already spent nearly $31 million on these kinds of ads, three times more than they had dumped into congressional races at this point in the 2010 cycle.
It’s not just the amount of money pouring into states like North Carolina, New Hampshire, and Alaska that is startling. Voters are increasingly left in the dark about where it’s coming from. That’s because the “dark money” nonprofits, primarily 501(c)(4) social-welfare organizations and 501(c)(6) trade associations, neither of which must disclosure their donors, are playing an increasingly prominent role in the fight to control Congress. By themselves, they have already spent 75 percent more at this point than in the record-shattering 2012 cycle, in which they would ultimately spend a whopping $310 million.
The often negative and misleading ads these groups put out may be little help to voters trying to make informed decisions, but the increased spending is a boon to the consultants who make millions no matter who wins. Just how much money these political entrepreneurs take home each cycle is difficult to say, though, and a paper just published by Harvard’s Shorenstein Center on Media, Politics, and Public Policy chides the U.S. press for being “oddly complacent” about this gap in political coverage. The paper, by former Thomson Reuters editor Lee Aitken—using data supplied by the Center for Responsive Politics—argues that the ability of a political operative to pocket so much money in a single election cycle may be skewing the national discourse toward more extreme views.
The media’s relative indifference to this self-enrichment may stem, in part, from the fact that consultants “are great sources and valued customers of the big media companies,” Aitken writes. But it’s also true that the sheer number and growing complexity of the networks into which the money is being poured, along with weak disclosure at the FEC and IRS, make it exceedingly difficult to follow the money all the way to someone’s bank account.
The roadblocks are many, Aitken writes, starting with the massive payments that campaigns and outside groups make to large “banquet” firms—one-stop shops for electioneering. The Obama campaign paid more than $300 million to one such firm, GMMB, in 2012, but knowing that lump sum gets one no nearer to discovering who in particular made a profit from the firm’s various services to the campaign. Similarly, the Romney campaign paid some $265 million to a shell company set up expressly to manage its media, which hid from view the remuneration of the campaign’s senior advisers.
As Aitken writes, senior campaign advisers would routinely set up a shell corporation, or LLC, that “wraps individual compensation into some larger bill for creative or strategic services.” It’s difficult even to identify the principals without digging up incorporation papers for these companies, which often bear alphabet-soup names— VG LLC, SLZ LLC, and WWP LLC. And even then it’s impossible to know how much they earned in salary, fees, and commissions—or, in a common practice, might have kicked back to campaign staffers who arranged the contract. It’s clear there’s good reason to wonder: Romney’s digital director, Zac Moffat, steered $95 million in campaign business to the firm he founded in 2009 while also collecting a $300,000 salary from the campaign. In another instance, a Reuters reporter discovered that $8 million spent by the pro-Gingrich super PAC Winning Our Future went to two shell corporations hastily set up by a former Christian radio ad salesman with no campaign experience.
But the new and growing challenge when it comes to understanding who is profiting from the gusher of election-related money is learning who is being paid by dark-money groups—a task that’s as difficult as figuring out where these nonprofits get their money in the first place: The hundreds of millions of dollars fueling them is often filtered through maddeningly complex, multi-layered networks of passthrough organizations meant to confuse anyone who wants to sort it out. The legal gymnastics necessary to create such impenetrable networks is a testament to the ingenuity of well-paid attorneys.
On the spending side, the IRS requires the nonprofits to provide almost no information about contractors they pay—only lump sums paid to the top five “independent contractors” that earn more than $100,000. That’s very unlike the FEC, which requires the political groups it oversees to provide itemized data on the dates, amounts, payees, and purposes of spending (though, as we noted earlier, that still leaves many unknowns). And it means that if dark-money groups engage in self-dealing shenanigans, the public is less likely to find out than if the IRS required more detailed reporting.
But the bounty reaped by consultants is not always the result of novel compensation arrangements. Sometimes it’s a matter of convenience. Take, for example, the massively complex $400 million dark-money network backed by the billionaire industrialists Charles and David Koch. As the Center for Responsive Politics has reported over the years, the network is unparalleled in both size and complexity, comprising dozens of organizations, including multiple 501(c) groups that act simply as conduits for money destined for other organizations. The network even incorporates wholly owned subsidiary LLCs, called “disregarded entities,” that obscure how money is flowing through the system.
The network has provided huge portions, sometimes more than 90 percent, of the total revenue for some of the most politically active dark-money groups in existence, like the American Future Fund and Americans for Prosperity. But as OpenSecrets Blog reported last December, with all that money sloshing around in the network of Koch-backed groups, one of the network’s key players, Sean Noble, a relatively unknown Republican operative from Phoenix, took the opportunity to pay three LLCs he controlled, all to the tune of tens of millions of dollars. Divorce records recently uncovered by ProPublica suggest that Noble’s personal cut was at least $3 million, not too shabby for the head of an organization that appears to have done little more than channel huge sums of other people’s money into a tangle of conservative nonprofits.
Noble’s operation funded groups that routinely mislead voters in attack ads that ran around the country, and at least for now, he seems to have been rewarded fantastically. For America’s top consultants, this appears to be less an aberration than it is par for the course. As Democratic consultant Hank Sheinkopf told The Daily Beast in 2012, the post-Citizens United gold rush is “the greatest windfall that ever happened for political operatives in American history.”